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Closing the Loopholes. To offset part of that loss, Nixon would close some of the controversial loopholes used by the wealthy to avoid taxes. The most spectacular item is a proposed limit on tax preferences—or LTP, as alphabet-minded Washington dubbed it. It would place a 50% ceiling on the amount of a taxpayer's income above $10,000 that is eligible for favored treatment. Income would have to include the appreciated value of property donated to charity, and the ceiling would restrict the amount of deductions that a taxpayer could take for 1) oil-depletion allowances and intangible drilling costs, 2) excessive farm losses, and 3) rapid depreciation of real estate holdings. Nixon would also require taxpayers with more than $10,000 of tax-preferred income (including long-term capital gains) to allocate itemized nonbusiness tax deductions between their preferred and ordinary income. Total revenue gain: $500 million a year.
Treasury officials insist that the two schemes would have imposed tax liability on nearly all of the 155 taxpayers who paid nothing in 1967 despite incomes that exceeded $200,000. Even so, Mills and other Congressmen criticized the Administration for proposing no curbs on big incomes derived from lightly taxed capital gains or tax-free interest on state and local bonds. Walker defended the omissions. Higher taxes on capital gains might cripple private investment and so require more study, he said; and there are constitutional questions about Washington's right to tax municipal securities.
Other Administration proposals chip away at a variety of much-abused tax devices. These include some debt-securities popular with conglomerates, such tax shelters as farm losses and certain trust income. Another target is "multiple subsidiaries"—a method by which some companies split up into myriad separate firms to take advantage of the lower tax rates (22% v. 48%) imposed on businesses with less than $25,000 income. Nixon also took aim at some wild abuses by tax-exempt organizations. Among other things, private foundations would be required to substantiate their charitable activities and be barred from financial dealings with contributors, directors or other insiders. The investment income of social clubs and other tax-exempt organizations would be taxed. Churches would have to pay taxes on income earned by businesses they own or operate.
Under the new plan, tax rules would be relaxed in a couple of areas. The 30% limit on the amount of charitable contributions an individual can deduct from his income in most circumstances would go up to 50%. Tax deductions for moving at the behest of an employer would be substantially liberalized, permitting such costs as house hunting, temporary lodging or breaking a lease to be written off up to a limit of $2,500 per move.
Balanced Impact. Despite considerable grumbling among businessmen, repeal of the 7% investment tax credit seems almost sure to win congressional approval. Once a supporter of the tax credit, Nixon changed his mind last month after surveys showed that corporate spending on new plant and equipment was heading for an inflationary 14% gain this year. Its immediate repeal is intended to make a slowdown in actual corporate spending mesh with the time next year when a lowered tax surcharge would give consumers more pocket money.